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Simple Interest
Compound Interest
Why Compounding Matters
Compound interest allows your earnings to generate their own earnings. Over long periods, even small differences in rate or frequency can lead to significantly larger returns. Use this calculator to see how much you could gain by investing in compound-interest accounts versus simple-interest loans.
Frequently Asked Questions About Simple vs Compound Interest
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal amount. Compound interest is calculated on the principal plus any previously earned interest, leading to exponential growth. This calculator shows you the exact difference.
How does compounding frequency affect returns?
More frequent compounding (daily vs monthly vs annually) results in higher total returns because interest is added to principal more often, allowing interest to earn interest. Our calculator lets you select from annual to daily compounding.
When is simple interest used vs compound interest?
Simple interest is common for short-term loans, car loans, or some bonds. Compound interest is typical for savings accounts, investments, and most mortgages. Understanding the difference helps you make better financial decisions.
What is the formula for compound interest?
A = P × (1 + r/n)^(n×t)
Where:
- A = final amount
- P = principal
- r = annual interest rate (as decimal)
- n = number of times interest compounds per year
- t = number of years
How accurate is this calculator?
The calculations use standard financial formulas and are accurate for the inputs provided. Actual financial products may have additional terms or fees, but this gives you a reliable comparison.
Can I use this for loans as well as investments?
Yes! For loans, the same formulas apply but interest costs you money. This calculator shows total amounts; if you're borrowing, compound interest will cost more than simple interest over time.